(Notes 1.3 “Goodwill”, 5 “Depreciation, amortization and impairment loss”, 10 “Goodwill” and 11 “Intangible assets, net” to the consolidated financial statements)
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Risk identified |
The business development of Publicis Groupe notably involves external growth transactions. These acquisitions have resulted in the recording of significant goodwill and intangible assets in the consolidated balance sheet. As of December 31, 2019, net goodwill amounts to €11,629 M in the consolidated balance sheet (compared to €8,751 M as at December 31, 2018) and net intangible assets amount to €1,979 M (compared to €1,125 M as at December 31, 2018). Publicis Groupe performs impairment tests at least once a year. An impairment loss is recognized whenever the recoverable amount is below the carrying amount, the recoverable amount being the higher of value in use and fair value less transaction costs. The valuation of the recoverable amount of these assets involves the use of numerous estimates and judgments from the management, in particular the assessment of the competitive, economic and financial environment in the countries where the Group operates, the Group’s ability to generate operating cash flow as a result of strategic plans, in particular the levels of revenue and operating margin, and the determination of discount and growth rates. The impairment tests on goodwill resulted in Publicis Groupe not recognizing any loss in 2019 (same in 2018). The impairment tests on intangibles assets resulted in Publicis Groupe recognizing a loss of €42 M in 2019 (none in 2018). From July 1, 2019, the useful life of the tradenames, which was indefinite until now, has been re-estimated and an amortization period of eight years was determined. The 2019 impact (6-month period) is €83 M, including an accelerated amortization of €33 M. We consider that the valuation of goodwill and intangible assets constitutes a key audit matter, given the sensitivity of these items to the assumptions used by the management and the materiality of the amount of these in the consolidated financial statements. |
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Our response |
• We obtained an understanding of the procedure and key controls set up by the management to perform the impairment tests and notably for the determination of the cash flows used to calculate the recoverable amount. • In order to assess the reliability of the business plans datas used to calculate the recoverable amount: • we compared the 2020 financial projections with the previous financial projections and with the actual results for the fiscal years concerned; • we conducted interviews with the independent expert engaged by Publicis Groupe for impairment tests’ purposes and with the financial and operational managers of Publicis Groupe to evaluate the main assumptions used in the business plans and compare these with the explanations obtained; • we compared the main assumptions used by the management of Publicis Groupe concerning revenue, operating margin and investments with external data when available, such as market studies or analysts’ reports; • we evaluated the sensitivity analyses performed by the independent expert and carried out our own sensitivity analyses on the key assumptions in order to assess the potential impacts of these assumptions on the conclusions of the impairment tests. • Concerning the models used to determine the recoverable amounts, we involved our valuation experts in order to: • test the mathematical reliability of the models and re-calculate the significant amounts; • evaluate the methods used to determine the discount and infinite growth rates, compare these rates with market data or external sources and re-compute these rates using our own data sources. • We assessed the accounting estimate change resulting in the amortization of the tradenames over a eight-year period. • We also assessed the appropriateness of the information set out in note 5 to the consolidated financial statements, which discloses the main assumptions used to determine the recoverable amounts. |
